Celebrity Chef: Keep Restaurant Labor Costs in Check, or Fail

In an episode of the Food Network’s TV show “Restaurant Impossible,” celebrity chef Robert Irvine visits a failing Mexican restaurant in New Hampshire. Irvine’s task is to advise the owners on how to better manage their restaurant to prevent it from going out of business. Upon inspection of the restaurant’s books, Irvine informed the owners that they “employ too many people who work too many hours” and there is “no way [the owners] could ever make a profit.”

It’s a concern not limited to this one restaurant. Labor costs consume roughly one-third of each sales dollar at restaurants. After accounting for other expenses, they’re typically left with three cents in profit per each sales dollar. Even a small fluctuation in labor costs can have a dramatic effect on a restaurant’s profitability—and thus its ability to expand, hire more employees, or even keep the employees it currently has.